20 / 488
Chapter
2
IIASB
Framework
11
The
Framework
notes that the most common measurement basis in financial statements is histori–
ca l cost, but that other measurement bases are also used, such as current cost, realizable or
settlement value, and present value.
6. CONCEPTS OF CAPITAL AND CAPITAL MAINTENANCE
6.1
The
Framework
distinguishes betwee n a financial concept of capital and a physical concept
of capital. Most entities use a financia l concept of capital, under which capital is defined in mone–
tary terms as the net assets or equity of the entity. Under a physical concept of capital, capital is
instead defined in terms of physical productive capaci ty of the entity.
6.2
Under the financial capital maintenance concept, a profit is earned if the financial amount of
the net asse ts at the end of the period exceeds the financial amount of net asse ts at the beginn ing of
the period, after excludin g any distributi ons to, and contributions from, owners durin g the period.
Under the physical capital maintenance concept, a profit is instead earne d if the physical productive
capacity (or operating capab ility) of the entity (or the resources or funds needed to achieve that
capacity) at the end of the period exceeds the physical productive capac ity at the beginning of the
period, after excluding any distributions to, and contributions from, owners durin g the period.
Recent Deve lopments
In October 2004, IASB added a project to its agenda to develop a new framework . Thi s proj–
ect is conducted jointly with the US Financial Accounting Standards Board (FASB). The ob–
jec tive is to develop a common conceptual framework that brings together and improves upon
the exis ting frameworks of IASB and FASB. In July 2006, IASB and FASB published a con–
sultative document that contains drafts of the first two chapters of an enhanced framework.
These chapters define the objec tive of financial reporting and the qualitative characteristics of
decision-usefu l financial information. At the time of writing, IASB and FASB were continu–
ing their discussions on these issues and other aspec ts of the new framework . In addition , they
have conducted roundtable discussions with constituent groups on measurement issues. IASB
and FASB plan to publish portions of the new framework as they are finalized and withd raw
the equivalent sections in the current text. A completed framework is not expected before
2010. To stay current in this area, readers should monitor deve lopment on this project.